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Baystar wants out of SCO investment deal

Baystar, a major investor in SCO, announced they want their money back. …

In a move that may jeopardize the SCO Group's aggressive litigation efforts, the venture fund Baystar Capital has asked SCO to redeem 20,000 shares of SCO's Series A-1 Convertible Preferred Stock. Redemption of this stock would amount to Baystar pulling their US$20 million investment in SCO, an arrangement partially brokered through Microsoft. This move caught SCO representatives completely off guard.?

"We received a letter from BayStar [on Thursday]," he said. "In that letter, they indicated to us that we had breached four different sections of the exchange agreement that had been finalized in early February this year. They gave us no hints on how SCO had breached the agreement."

As of now, SCO does not feel they have breached any part of the agreement and are not obligated to redeem Baystar's shares of SCO's Preferred Stock. SCO is also seeking further information on the complaint (sound familiar?). The OSDN IT Manager's Journal believes a US$30 million investment by the Royal Bank of Canada (RBoC) may also be in jeopardy. The loss of US$50 million in investments from both Baystar and RBoC would basically deplete most of the war chest SCO is using in litigation against IBM and other Linux customers. Groklaw has a summary of SCO's press release concerning Baystar's redemption request along with relevant sections in the Exchange Agreement which may have been breached.

While this is bad news for SCO, analysts believe it will be difficult for Baystar to get their money back, especially if SCO is unwilling to redeem. There are also questions on Baystar's willingness to recover their investment through a lawsuit. If Baystar files a lawsuit, they would essentially be forcing SCO to use Baystar's investment money against themselves. One thing is for sure, this announcement makes it very difficult for SCO to secure additional financing in the future.